Ofgem Fuels Cashback Debate in the Energy Sector

06/11/2013Author: Cat Leaver

The Drum reported today that Ofgem has rejected an appeal from a group of affiliates and networks, who joined forces back in June when a report was published that detailed plans to ban cash-back in the energy sector. Following the failed appeal, the ban will go ahead in March 2014, changing the landscape of the affiliate channel in the energy sector permanently.

Affiliate marketing is a form of online, performance-based marketing whereby publishers (affiliates) send traffic to a merchant’s site, and are rewarded commission when clicks convert to sales. Cash-back affiliates are those that offer this commission back to the consumer as an incentive to buy. So, if npower (for example) is willing to pay affiliates £40 for every sale they refer, the affiliates will offer the customer £40 to choose npower. This gets interesting when energy suppliers provide short term cash-back increases on a tactical basis, striving to beat the competition and attract new business. At any given time, a consumer can find a wide spectrum of cashback offers from each of the “Big 6” energy suppliers, as well as the smaller players like First Utility.

The Retail Market Review Report called for a ban on cash-back in the energy sector, citing that it is confusing for the consumer, with cashback offers blurring the lines of the “best” deal. The appeal group, led by the Internet Advertising Bureau, put forward a compelling case that argues that cashback actually encourages competition, forcing the suppliers to work harder at customer retention, thereby providing a better service, but the appeal was overturned by Ofgem and the ban will go ahead as planned.

Interestingly, the ban will not currently extend to aggregator sites like uSwitch and Money Supermarket. According to the Drum, consumers who navigate to one of the comparators via a cashback site will still be eligible to receive a cash incentive. The article also suggests that it is likely to extend to these sites in due course, but in the meantime it could be that those who are loyal to incentive sites begin to use aggregator sites more and more. In turn, this could increase the power these partners have over the suppliers.

The ban raises questions about the future of affiliate marketing for energy. Not only are cashback increases a powerful, tactical move that can drive significant exposure at “need” times, but this demographic typically accounts for the vast majority of energy affiliate sales. Without these partners on board, is there a future for energy affiliate marketing?